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Chapter 14: Q10Q (page 753)
Question: Will the amortization of Discount on Bonds Payable increase or decrease Bond Interest Expense? Explain.
Answer
The amortization of discount on bonds payable will increase bond interest expense for the period such that interest expense surpasses the interest payment to bondholders
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Assume the bonds in BE14-6 were issued for $644,636 and the effective-interest rate is 6%. Prepare the company’s journal entries for (a) the January 1 issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
E14-2 (L01) (Classification) The following items are found in the financial statements.
(a) Discount on bonds payable.
(b) Interest expense (credit balance).
(c) Unamortized bond issue costs.
(d) Gain on repurchase of debt.
(e) Mortgage payable (payable in equal amounts over next 3 years).
(f) Debenture bonds payable (maturing in 5 years).
(g) Notes payable (due in 4 years).
(h) Premium on bonds payable.
(i) Bonds payable (due in 3 years).
Instructions
Indicate how each of these items should be classified in the financial statements.
On December 31, 2017, Hyasaki Corporation has the following account balance:
Bonds payable, due January 1, 2026 \(2,000,000
Discount on bonds payable \) 88,000
Interest payable $ 80,000
Show how the above accounts should be presented on the December 31, 2017, balance sheet, including the proper classifications.
Question: Under what circumstances would a transaction be recorded as a troubled-debt restructuring by only one of the two parties to the transaction?
On January 2, 2012, Banno Corporation issued \(1,500,000 of 10% bonds at 97 due December 31, 2021. Interest on the bonds is payable annually each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable “interest method.”)
The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2017, Banno called \)900,000 face amount of the bonds and redeemed them.
Instructions
Ignoring income taxes, compute the amount of loss, if any, to be recognized by Banno as a result of retiring the $900,000 of bonds in 2017 and prepare the journal entry to record the redemption.
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